To say that the first half of 2010 set the year with an inauspicious start would be an understatement. The broad based S&P 500 index – which tracks the moves of the biggest 500 stocks on Wall Street – is already down nearly 4% since January… And nearly 12% since April.

But stocks could be setting themselves up for a new rally – if a few stars can align.

The old adage goes that everything is priced into the market. From the moment news is disseminated to the public, it’s analyzed and dissected to form the basis for investment decisions.

It’s no shock then that Europe’s debt problems have hurt stocks here at home. The declining value of the Euro means that one of our biggest trading partners has less buying power – and as a result, U.S. companies who sell products across the pond are seeing the valuations of their Euro-denominated operations fall hard.

But real economic news isn’t the only reason stocks have lagged this year. Estimates – also known as best guesses – play a big role on Wall Street. And like news, they’re used by retail investors and institutions alike to make investment choices.

That means that when analysts expect a company to report earnings of $1 per share, those earnings are priced into the stock before the company announces its results.

Wall Street estimates, though, aren’t always spot on; that’s where earnings season volatility comes in. When a company delivers numbers above estimates, the stock jumps – after all, the lower numbers had already been priced into it. When they underperform estimates, the opposite happens.

So it’s no surprise that in 2009, when the bears were out in full force and analysts were sticking to conservative estimates, companies continually outperformed the Wall Street’s best guesses and stocks rallied.

In 2010, though, analysts have adjusted their models. They realized that their numbers in 2009 were too conservative – and they’ve succeeded in completely overshooting earnings on scores of key companies in the past quarter.

Stocks have tumbled as a result.

But a technically oversold market and increasingly bearish stance from analysts look to turn that around this quarter. With stocks trading at levels not seen since last October, investors are realizing that a bullish bounce is eminent. More often than not, those sentiment readings are a self-fulfilling prophecy.

But while a short-term rally would be welcomed, for it to be sustainable it’ll need the economic fundamentals to back it up… Here’s a glimpse at what’s going on.

Rates Resting: Yesterday the Bank of England and European Central Bank announced that rates would remain unchanged – as expected. The decision suggests that the situation in the PIIGS countries is stabilizing.

Retail Sales Sour: June’s poor same store sales from major retailers this week drove home the fact that consumer spending has pulled back from the frenzy of 2009. Among the worst performers were mall apparel retailers. These numbers need to improve next month for any sort of sustainable jump in stock prices.

Jobs Continue to Be Less Bad: Jobless numbers were also announced yesterday, with both initial claims and continuing claims ringing in under estimates. But there’s still much further for these metrics to fall before we can celebrate.

Commodities Go Strong: Commodities – like crude oil and gold – continued to perform well in the increased volatility we’re seeing right now. The dollar is also a strong performer – if only thanks to investors’ exodus from the stock market right now.

Could Our Computer Science Play Double Our Money?

But not all of the news on Wall Street has been depressing – Computer Sciences Corporation (NYSE:CSC), the IT stock we picked up back in March 2009 for $34.19 per share, has been the topic of discussion lately…

Rumors are going around that defense industry giant Lockheed Martin (NYSE:LMT) could be interested in acquiring CSC for a price in the low $60s. The acquisition would make sense – Lockheed has been working to build its IT offerings and diversify away from the defense contracts that have built its nearly $30 billion business.

A buyout would be a coup for Rhino Stock Report readers who got in back in March – offering nearly double our money. But those rumors are just rumors for now, and I’m not recommending you increase your stake at current prices. I’ll keep a close eye on these developments.

An IPO conference at the NYSE on Friday kept me from sending you a market recap last week… Today, I wanted to make up for that by going over a number of our open positions – and answering the common questions of whether now’s still a good time to buy shares.

Applied Materials Breaks Support
I’d held off recommending shares of Applied Materials (NYSE:AMAT) for a while, hoping to find a more attractive entry point. While it looked like that time had come on June 23, when the Rhino Stock Report took an official position in the semiconductor company, shares broke through support following a nasty week of European debt news and a bearish turn on solar stocks…

Shares look like they’re continuing their descent – but not for much longer. If you haven’t entered this stock already, I’d recommend buying shares on the first signs of strength. If you’re a big fan of Applied Materials, consider doubling down.

Becton, Dickinson’s a Buy
Becton, Dickinson (NYSE:BDX) hasn’t been a particularly strong performer this year, falling more or less in line with major market indexes like the S&P 500. But I’m still bullish on this stock and Main Street is catching on – a recent Barron’s profile on the company suggests that a 40% upside is in place.

If you haven’t picked up shares of Becton yet, now would make for a good time to do so.

Berkshire Hathaway Boasts 31% Outperformance
We’re up more than 20% on Berkshire Hathaway (NYSE:BRK.B) as of this writing – a position that’s outperforming the broad market by around 31% as of this writing. If you bought back in January when I recommended the stock, continue to hold onto it. We got into shares of Warren Buffett’s company at a significant discount thanks to the market’s mispricing of Berkshire’s split… if you missed it, I’d recommend investing elsewhere for now.

NRG Steps Up Acquisitions
Our wholesale power generation play has been on a shopping spree, buying up key subsidiaries at discount prices. That’s a strategically significant phenomenon because it suggests that NRG Energy (NYSE:NRG) is well on its way to rounding out its energy offerings this year. With headwinds turning to tailwinds for alternative energy, NRG is a smart stock to be in right now. If you haven’t bought shares, consider buying at current levels.

Sell Off Your Bear Market Hedge
I wrote to you back in January 2009 about the ProShares UltraShort S&P 500 ETF (NYSE:SDS) as a potential hedge against a “W-Shaped” market recovery. I qualified that article by saying that SDS should only be held in the very short term because of tracking errors inherent to leveraged ETFs… but I never issued an official sell alert on the fund.

That’s in part because I talked about SDS without knowing how exactly to treat an investment where I specifically said. “This isn’t a Rhino Stock.”

But I think that the fund’s performance in the Rhino Stock Report portfolio is causing confusion, so I’m officially selling it today and putting it in a “Special Situations” portfolio on our Members Only website.

Hold Onto The Big Gainers For Now
The rest of the stocks recommended in the Rhino Stock Report before 2010 should be pretty sizable gains for you right now. As such, I’m recommending that you continue to hold them, but don’t recommend initiating positions if you haven’t already. With gains like 55% in J.M. Smucker (NYSE:SJM) as of this writing, they’re not the values they once were – but they should still provide performance for us during the rest of 2010.

Have a good fourth of July weekend. I’ll be back next week with a more traditional market update.

Cheers,
Jonas

Time to Jump On Applied Materials

We’ve been holding off adding Applied Materials (NASDAQ:AMAT) for the last several weeks in hopes that we’d be presented with a more attractive entry point. That price level has materialized, and now’s the time to add this semiconductor giant to our portfolio.

But first, I want to tell you why this stock fits into our investment mold.

We’ve talked a lot about Applied Materials lately, but most recently it’s been in the context of stock charts and timing. While charting is an exceptionally valuable tool for timing entries and exits, it’s never the sole basis for investing in a Rhino Stock – instead, the fundamentals are key.

And in Applied’s case, those fundamentals are duly impressive. From the emergent technologies coming out of its research and development department to the consistent revenue streams from Applied’s semiconductor equipment business, this firm has the value case and growth prospects to warrant a significantly higher share price.

The Leader in Nanomanufacturing

In essence, Applied Materials is one of the biggest players in the nanomanufacturing market – a fancy word for the business of building small.

The company’s core business includes fabrication tools for chip manufacturers, components for flat-screen displays, and even solar panel manufacturing. Through significant growth since its founding in 1967, Applied has carved itself a large competitive advantage over its competition. That growth has been fuelled by huge research and development spending – around $1 billion annually – spending that isn’t easy for competitors to compete against. The end result is a store of intellectual property that spans across Applied Materials’ businesses and gives the company one of the biggest reaches of any technology firm.

Today, Applied is the biggest supplier to the global semiconductor industry – a $17 billion market that the company currently controls more than 15% of according to a recent study by Gartner. And with customers like Intel, Toshiba, and Texas Instruments, it’s no surprise that this stock has built itself an unmatched reputation in semiconductor fabrication.

In fact, if you’re reading this Rhino Alert on a flat-screen monitor – or using nearly any electronic device, for that matter – there’s a good chance you’re making use of Applied’s technology.

Applied’s position in semiconductors is impressive, but the further reaching implications shouldn’t be missed… With a number of breakthroughs forthcoming on the semiconductor front, the industry is on the verge of significant growth; and increasingly complex and production-intense chip technologies translate into more profits for our pick.

That reach also makes for higher switching costs for its installed base. When a major chipmaker like Intel uses Applied Materials’ processes or technologies, it’s extremely expensive and time intensive to switch to a competitor’s offerings.

That chipmaking prowess has been transferred over to Applied’s flat-panel display segment in recent years. Because many of the technologies used to fabricate semiconductors are similar to those used in the flat-panel manufacturing process, Applied was able to hit the ground running with its entrance into this high-growth segment of the tech market.

Of course, flat-panels haven’t been the only area where Applied Materials was able to apply its existing intellectual property to new businesses. Starting in 2006, the company began making acquisitions for its burgeoning solar panel business. Today, its solar photovoltaic (PV) segment is developing some exciting new high-efficiency panels that stand to make solar energy commercially viable on a large scale.

Despite all of the prospects that Applied Materials is enjoying, this stock has faced some serious setbacks in the last couple of years. The semiconductor and flat-panel industries have been on a cold streak of late, hampered by excess inventory and significant declines in consumer spending. Likewise, solar has lost some of the cachet it enjoyed in late 2007 as efficiency concerns and high capital requirements scared potential customers away.

But economic tailwinds are starting to form in all three segments as consumer spending begins to perk back up and controversy over fossil fuels grows – especially in the wake of the Deepwater Horizon spill in the Gulf of Mexico.

Financial Stability in Tough Times

Even though Applied Materials has faced challenging economics in the last year, the company’s strong financial position has kept the stock from floundering. At present, Applied’s balance sheet is impressive – with more than $3.6 billion in cash and only $207 million in debt right now, the company has more than enough liquidity to battle through less than ideal markets.

From a profitability standpoint, Applied has historically been one of the best companies in the industry. That changed in fiscal 2009 when the company posted a loss of 23 cents per share versus profits of 97 cents for the same quarter in 2008. Not surprisingly, Applied’s poor performance was the result of slowed revenues for the year amid billion-dollar R&D costs. In the long-run, keeping research and development spend high should pay off for Applied’s shareholders even if it led to short-term losses.

This year, the company’s on track to deliver substantial revenue growth.

That said, the factors that bode well for a resurgence in Applied Materials’ share price have yet to take effect in any meaningful way – that makes right now an excellent time to become a shareholder in this tech giant. I’m adding Applied Materials to the Rhino Stock Report’s portfolio at its current market price. That should be reflected online in our live portfolio by the day’s end.

I’ll keep this week’s update short and sweet – Applied Materials (NYSE:AMAT) broke through resistance this week, and I’m anticipating issuing a buy recommendation on a bounce higher, most likely on Monday or Tuesday.

But while I hack away at AMAT’s financials, I wanted to fill you in on another of our portfolio position, J.M. Smucker (NYSE:SJM)…

Smucker announced earnings of $1.07 per share, blowing away Wall Street’s expectations of 80 cents. Revenue too increased 10% to $1.1 billion, suggesting  that the company’s consumer staple status is paying off in an otherwise volatile market.

Shares of the company are up more than 11% in the last five trading days, bringing our total gain to 61.42%. Continue to hold onto your shares.